[Basic Chemicals] Sharing a trade setup mid-session
Sharing an arbitrage play I do a lot: PX, that is, paraxylene. As a chemical, paraxylene gets pushed around by crude oil. Everyone knows that recently, because of the US-Iran war and the Houthi conflict with Saudi Arabia, exports through the Strait of Hormuz and the Bab el-Mandeb Strait have been restricted.
Crude has been pushed steadily higher. Whether the move is a strong rally or a drop, the near month usually moves first — that's an important logic behind arbitrage.
Lately I've also been doing long arbitrage on crude-related products like methanol, asphalt, and fuel oil, and I've had some modest gains — profits hit a new high.
But these past couple of days, paraxylene has caused some big swings in my account. That's because when the PX12-PX1 spread hit 200, I decisively went short. Even though paraxylene is a chemical too, sometimes it moves against the other chemicals.
Normally, with the cancellation month weighing on it, around 200 is the high. But before, on paraxylene I always did butterfly spreads. This time I wanted to do a single reverse spread, and with the cancellation month on the far leg, too. Then yesterday the spread shot all the way up to 300. I lost 100 points because of my own thinking, and it hurt.
That was the PX12-1 spread: I entered short at 200, and it peaked at 300.
Luckily, I went back to butterfly spreads and decisively positioned in the far months of paraxylene: PX1-2 and PX2-3. When the spread hit its high of 80, I decisively went short, and today I finally got my payoff.
Comments
0